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Reports of Draft Wage Regulation Circulate Amidst Official Concern Over Income Disparity

February 7, 2011

In part to address official concern over the unequal distribution of wealth across China and its potential effects on "social unrest," the government reportedly has assembled a "basic framework" for a national regulation on wages. As of this writing, the full text of the draft regulation does not appear to be available on the Internet. Media reports, however, have described several specific aspects of the draft regulation.

In part to address official concern over the unequal distribution of wealth across China and its potential effects on "social unrest," the government reportedly has assembled a "basic framework" for a national regulation on wages. A November 19, 2010 China Business Network article reported that officials at the Ministry of Human Resources and Social Security (MOHRSS) have finished a framework for the Regulations on Wages (draft regulation), noting, however, that deliberations surrounding the pending legislation likely would not conclude in 2010. As of this writing, the full text of the draft regulation does not appear to be available on the Internet. Based on media reporting, the draft contains 10 sections, including provisions that delineate the "parameters for collective contracts, collective consultations, and minimum wages."

A July 29, 2010, Beijing Times article describes several specific aspects of the draft regulation:

The draft reportedly would "adjust the floor and limit the ceiling" by (1) instituting standards to determine minimum wage level increases, and (2) mandating that certain enterprises "periodically and publicly release the average wage levels, increases, and bonuses."

The draft reportedly states that overtime compensation, time off given on days with extreme temperatures, as well as various kinds of state subsidies may not be factored into the calculation of wage levels.

The draft reportedly also calls upon provinces to consider local consumer price indexes in setting minimum wage levels.

An August 5, 2010, Sina report provides a few other details on the draft, including:

The establishment of a "normal increase mechanism," divided into two parts: (1) to "create a system" of collective wage consultations, and (2) to "open a scientifically logical space for wage increases."

According to one labor expert cited in the article, the draft lacks clarity on certain points. For example, it reportedly does not delineate whether or not employers will be required to answer workers' demands for collective wage negotiations, nor does it lay out the consequences for failing to do so (see previous CECC analysis on a proposed experiment in Guangdong province to grant workers rights to collective wage consultations).

The labor expert also supported the idea to "link wage increases to the growth of enterprises," which apparently was introduced in an earlier version of the draft (dated 2009).

The draft regulation reportedly attempts to bridge the wealth gap with additional provisions such as requiring the disclosure to both the government and the public of current salary levels within what one state-run publication called "monopolized industries." According to a May 6, 2010, China.org.cn article, the so-called "monopolized industries" (longduan qiye) refer to state-owned enterprises in industries such as electricity, telecommunications, insurance, and finance. Another provision reportedly also would require these enterprises to seek approval from three different government departments before issuing bonuses or raises. A November 23, 2010, Southern Weekend commentary reported that these provisions have contributed to the delay in the regulation's approval. One academic cited in the article stated that the draft's proposed "interference with or even control of wages through administrative methods are not compatible with the trends of market economics."

The MOHRSS began drafting the regulation in 2007, according to a September 1, 2010, Global Times article, and officials reportedly started soliciting comments and suggestions in early 2009. At the time, some media reports indicated that the regulation would be approved by the end of 2010, though one MOHRSS official later said that was never the case.

Background Information on Wages, Labor Shortages, and Income Inequality

In the past year, wage levels in China received broad attention in the Chinese and international media. Throughout 2010, provinces and localities across China raised minimum wage levels. A January 20, 2011, South China Morning Post article (subscription required) reported that Guangdong province is expected to raise minimum wages by 19 percent; the move reportedly will elevate the monthly wage level in Guangdong's provincial capital, Guangzhou city, to 1,300 yuan (US$197), which is the highest in China. From a long-term perspective, such increases seem to reflect an already established trend: a recent study by the Institute for the Study of Labor, for example, indicates that "between 1978 and 2007, the average real annual wage for staff and workers grew more than sevenfold from 3,285 to 24,932 Yuan."

In addition, labor shortages have surfaced in the country's manufacturing centers, particularly in the south (New York Times, November 30, 2010; Asia Times, January 29, 2011). As early as 2006, the PRC State Council Development Research Center found that 75 percent of the 2,749 villages surveyed in China "no longer have young laborers (qing zhuangnian laodongli) to move" outward. Such developments reportedly have contributed to the upward pressure on wage levels and, combined with other factors, have made some factory owners consider moving their operations further inland or to Southeast Asian countries in order to keep production costs competitive. Some economists, however, have challenged this viewpoint, saying that "improved productivity can pay for more than half of these wage increases, while the other half can be passed in the form of higher customer prices" (Bloomberg, June 10; Caixin, June 28). Moreover, a May 5 China Daily article points out that, despite moderate increases, wages actually have fallen for 22 consecutive years as a proportion to China's GDP.

Unequal wealth distribution was featured prominently at last year's National People's Congress and Chinese People's Political Consultative Conference, according to the Global Times report. In recent months, Chinese media outlets continued to report on the growing gap between the rich and poor. The China Business Network article, for example, reported that the current "income ratio among China's eastern, central, and western regions" is roughly 1.52:1:0.68. Moreover, the distribution has grown more unequal over time, with the countryside lagging far behind its urban counterparts. The ratio of "urban to rural income" was 2.9:1 in 2001, 3.22:1 in 2005, and 3.31:1 in 2008. The difference between the top and bottom 10 percent of China's income earners has increased from a multiple of 7.3 in 1988 to 23 in 2009.

For additional background on wage levels in China, and other information related to worker rights, see the CECC 2010 Annual Report.